Eurozone recovery hits the buffers

The eurozone recovery ground to a halt in the second quarter after German output shrank and France flatlined, official data showed today.

Hopes for an upturn for the 18-nation bloc have been hit by the impact of tit-for-tat sanctions with Russia over the Ukraine crisis.

Bank of England governor Mark Carney cited this week the "modest" pace of growth in the eurozone - Britain's biggest trading partner - as a key challenge facing the UK.

Markets had been expecting the eurozone to post 0.1% growth but even this meagre expansion proved too much and instead it was recorded as 0%, following a 0.2% improvement in the previous period.

Germany shrank by 0.2%, slightly worse than feared, as its trade balance worsened, following growth of 0.7% in the first quarter.

Meanwhile, France posted zero expansion for the second successive quarter, as its finance minister immediately halved its growth forecast for the year to 0.5%.

The European Central Bank has slashed interest rates to record lows as policy-makers try to stave off the threat of a damaging deflation spiral in the stagnant economic zone.

But experts believe fears of an escalation in the Ukraine crisis are holding back investment and postponing some spending.

Latest figures from Italy show it returned to recession in the second quarter, though Spain and Portugal bucked the gloomy trend with each country posting growth of 0.6% for the period.

The eurozone's struggles contrast with the UK, which is expected to see gross domestic product (GDP) growth of 0.8% for the quarter confirmed tomorrow. It is forecast to post the strongest performance among major world economies this year.

Peter Vanden Houte of ING Bank said the eurozone figure was even worse than already-downbeat consensus expectations.

"Today's figures show that the upturn remains too weak to withstand external shocks, meaning that GDP growth will probably remain stuck in stop-and-go mode. It now looks very likely that GDP growth for the whole of 2014 will remain below 1%."

Chris Williamson, chief economist at Markit, said: "A stalling of economic growth in the second quarter raises concerns that the euro area is sliding back into a triple-dip recession.

"Many, including the European Central Bank, point to survey data suggesting such fears are overplayed, and that growth will revive as previously-announced stimulus take effect.

"But the weakness of economic growth will certainly fuel louder calls for the ECB to do more to reinvigorate growth across the single currency area."

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